BSE Sensex soars, investors cash out

Apr 12 2014, 01:31 IST
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Experts believe that long-term investors, sitting on losses, have been particularly keen to exit their investments during rallies. Reuters Experts believe that long-term investors, sitting on losses, have been particularly keen to exit their investments during rallies. Reuters
SummaryIndian equities may be at new highs but small investors aren’t feeling brave enough to hold on to their equity investments, reports Ashley Coutinho in Mumbai.

Indian equities may be at new highs but small investors aren’t feeling brave enough to hold on to their equity investments, reports Ashley Coutinho in Mumbai. More than three lakh equity folios closed in March, a month when the benchmark indices rallied 6%, as investors booked profits. About 40 lakh equity folios saw closure in FY14, leaving total equity folios at 2.91 crore, down from a peak of 4.11 crore in March 2009. Folio closures totalled 3.65 lakh in March, the highest number of folio closures since the month of November, data available with the Securities and Exchange Board of India show. FY14 saw 39.93 lakh folios being extinguished compared with 44.73 lakh folio closures in the previous fiscal. Experts believe that long-term investors, sitting on losses, have been particularly keen to exit their investments during rallies.

“Long-term investors sitting on losses typically tend to exit their investments during market upmoves. This is the reason for the large number of closures,” said Puneet Chaddha, CEO, HSBC Asset Management. Chaddha added that some equity investors may have moved into 1-year fixed maturity plans in March to take advantage of high interest rates and the double indexation benefit.

“Many first-time investors who entered the market in 2007 and 2008 and were out of the money are gradually exiting their mutual fund investments. This trend is likely to continue for some more time unless the market sees a sustained uptrend for six to seven months at least,” said Dhirendra Kumar, CEO, Value Research, a mutual fund tracker.

According to Lalit Nambiar, fund manager (equities) and head (research), UTI MF, Indian retail investors typically shy away from cutting losses: “If they bought a scheme when the NAV (net asset value) was 25 and it subsequently slipped to 20, they will sit on the investment till the value comes back to 25, even if it means holding on to the investment for several years,” he said, adding that there was a possibility that investors were playing it smart and exiting their investments as they didn't want to take the chance of awaiting the outcome of the national elections, which could swing the market either way.

Folio closures are worrying as equity assets are a lot stickier than debt assets and can generate higher revenues for fund houses. Fund managers have been advising investors to continue their systematic investment plan portfolios even in tough times but long-term

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